Krugman on Consumer Financial Protection

Paul Krugman's column, under the headline "Friends of Fraud," faults Republicans for trying to rein in the Consumer Financial Protection Bureau established by the Dodd-Frank banking regulation law. Writes Professor Krugman:

There was, however, one piece of the reform that was a shining example of how to do it right: the creation of a Consumer Financial Protection Bureau, a stand-alone agency with its own funding, charged with protecting consumers against financial fraud and abuse.

What Republicans are demanding, basically, is that the protection bureau lose its independence…. they also want to take away its guaranteed funding, opening it to interest-group pressure.

Imagine how Professor Krugman, or congressional Democrats, would react if Republicans tried to make the Air Force, including nuclear-armed bombers and missiles, into an "independent" agency with "guaranteed funding" to make it immune to pressure from interest groups, including, say, the peace or disarmament lobby. They'd probably, with good reason, object, pointing out that, under the Constitution, America doesn't have government agencies that are independent, stand-alone, or that have guaranteed funding. Instead our government is accountable to elected representatives, as part of the executive branch (subsidiary to the president), and funded by the Congress, whose members are elected by the people. Another word for what Professor Krugman describes as "interest-group pressure" is democracy.

The Heritage Foundation calls the CFPB: "perhaps the least accountable entity in the federal government. Formally part of the Federal Reserve, it is outside the Executive Branch, leaving it beyond presidential supervision. It is funded through revenues from the Federal Reserve, meaning it is outside the power of congressional appropriators. At the same time, however, the Federal Reserve itself is barred from interfering with the activities of the CFPB. This structure defies all concepts of accountability and oversight, as well as the constitutional principles of separation of powers."

George Will calls it, "Untethered from all three branches of government, unlike anything created since 1789… By creating a CFPB that floats above the Constitution's tripartite design of government, Congress did not merely degrade itself, it injured all Americans."

Whether a court will strike down this scheme as unconstitutional is an open question, but if members of Congress want to use what leverage they have to revise it, they should be cheered rather than insulted. If anyone here is a "Friend of Fraud," it's not the Republicans trying to reverse this mistake, but Professor Krugman, for setting up an unaccountable, self-funding agency is an invitation to fraud if there ever was one.

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